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Mobileye Earnings Beat Expectations as Revenue Jumps 34%

Results were better than expected: A 34% increase in revenue drove earnings per share up 27% to $0.19. That beat the consensus estimate of analysts surveyed by Zacks Investment Research by $0.01.

Mobileye's shares fell about 1% in trading in New York after the results were released.

The raw numbers

Metric

Q3 2016

Q3 2015

Revenue

$94.9 million

$70.6 million

OEM revenue

$72.6 million

$60.8 million

Gross margin

75.5%

74.1%

EyeQ chips shipped

1,553,000

1,351,000

EyeQ average selling price

$45.50

$43.50

GAAP net income

$27 million

$24.2 million

Non-GAAP net income

$46 million

$34.8 million

GAAP cash flow

$38.6 million

$26.2 million

Non-GAAP cash flow

$36.9 million

$25.6 million

Data source: Mobileye N.V. Mobileye's expression of non-GAAP net income and cash flow excludes the costs of share-based compensation as well as the applicable income tax effects. Mobileye reports its shipment totals rounded to the nearest 1,000.

That was followed by a more dramatic announcement in August, when Mobileye and giant auto supplier Delphi Automotive (NYSE: DLPH) said they would work together to create a complete self-driving system that will be available to any automaker starting in 2019.

Both partnerships are aiming at so-called Level 4 systems, which offer full self-driving capability under limited circumstances. (Most Level 4 systems under development rely on highly detailed 3D maps; full autonomy is limited to the areas covered by the maps.)

Both were significant announcements that bode well for Mobileye's future prospects -- and suggest strongly that Level 4 self-driving technology will be a commodity within a few years.

But Mobileye's current business continued to show strength in the third quarter. During Mobileye's earnings call, CEO Ziv Aviram noted that the company won several new contracts from existing automaker customers for both advanced driver-assist systems (ADAS) and semi-autonomous Level 3 systems. (A Level 3 system requires an alert human driver as backup.) Aviram said that Mobileye also won a contract for a Level 4 system with a "nontraditional automaker" during the quarter.

As you can see in the numbers above, revenue, chips shipped, average selling price, and both GAAP and non-GAAP net income were all up from year-ago results, despite previous hints from the company that its rate of growth would slow in 2016 versus 2015 simply because of the timing of its customers' new-vehicle programs.

CFO Ofer Maharshak attributed the rise in average selling prices to the mix of products sold, which included a higher proportion of "pedestrian autonomous emergency braking" systems than a year ago.

What Mobileye executives said about the quarter

Our core business performed well in the third quarter. Strategically, we continue to see rising interest for higher-level autonomous vehicle technology. Most new customer requirements for future programs now include a semi-autonomous feature-set in addition to Advanced Driver Assist System safety features.

We have also seen an uptick in discussions relating to fully autonomous programs on the heels of our two recently announced Level 4 programs with BMW and Delphi. I am pleased that our customers continue to recognize the value Mobileye provides across the entire driving spectrum -- from Driver Assist to Fully Autonomous.

Co-founder and chief technology officer Amnon Shashua offered a view into Mobileye's pipeline -- or put another way, into the pace of development and adoption of self-driving technologies, including Mobileye's new Road Experience Management (REM) crowd-sourced mapping system:

Business opportunities around Level 3 to 5 autonomous vehicle programs continue to develop at a rapid pace. Starting up with REM, all open items related to the first definitive agreement with one of our major OEMs [original equipment manufacturers, the industry's term for automakers] have been closed. Subject to internal approvals, we expect to announce details shortly.

The complexity and uniqueness of this agreement caused some timing delay, but we are very pleased by the results, and believe it can be used with other REM partners. We expect several more major OEMs to join based on discussions we have had over the past month.

Additionally, discussions with mapmakers continue to progress well, and an MOU [memorandum of understanding] with one of our mapmakers is expected to progress. On the fully autonomous side, we announced a partnership with Delphi during the quarter to develop a Level 4 autonomous vehicle system. The platform will be marketed as a turnkey system to multiple OEMs.

As Delphi mentioned on their recent earnings call, this product has already seen significant interests. We were awarded a Level 4 autonomous system with a nontraditional OEM. The program is expected to launch in the late-decade time frame. There's an additional Level 4 autonomous production program with a large volume OEM that we are supporting, and hope to be able to disclose details in the near-term.

Finally, we have made substantial engineering progress this year on the first key autonomous driving pillar, driving quality. We recently published a white paper, which can be found on our website, and we intend to make this a focus of our CES activities coming up in January.

I'd like to highlight that REM and driving policy represent a major organic expansion to Mobileye's product offerings, neither of which was envisioned by the market 12 months ago. Based on customer interest, it is clear that our unique approach in these important areas reinforces Mobileye's position as a quick enabler of next-generation transportation.

Looking ahead: Guidance for the remainder of 2016

Here's what Maharshak said about the company's financial outlook for the full year:

We now expect our total 2016 revenue to be at the high end of our previous guidance of $344 million to $350 million, representing approximately 45% year-over-year growth. This adjustment results from the higher- than-expected aftermarket volume that has been sustained over the past few quarters.

Aftermarket revenues are expected to represent approximately 21% of total revenues for the full year. As a reminder, we view and manage our business on an annual basis, as our quarterly results can fluctuate due to the timing of orders and the timing of the introduction of new vehicle models containing our products.

As for net income, we also now expect our full year non-GAAP net income guidance to be at the high end of our previous guidance range of $167 million to $170 million, which translates to non-GAAP EPS of $0.71.

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